Tired Of High Gasoline Prices Already? We Ain't Seen Nothing Yet

It's not even March yet and already the groaning has begun over ramping gasoline prices. Nationwide the average gallon of gas cost $3.59 last week. That's up big from $3.19 the same time last year. U.S. oil prices, benchmarked to West Texas Intermediate are $104 a barrel, versus just $85 a year ago.

Stop your whining. At $3.50 a gallon, fuel makes up just 29% of the total cost of driving. The U.S. Department of Transportation figures that insurance, license, registration, taxes, depreciation and finance charges on the average car come to about $5,600 a year. Enough gas to drive 15,000 miles will set you back just $2,300. I know that's a lot for many people -- but the average family could offset most of that fuel bill by cutting off its cable TV (you can stream the good stuff over Netflix anyways).

Indeed it's incredible, considering the international sanctions squeezing Iran's exports, that oil is still as cheap as it is. Yes, gasoline is still cheap in America, thanks to combination frugal driving trends spurred by the Great Recession paired with remarkable growth in domestic supplies.

Gasoline usage has dropped significantly. From 9.29 million barrels per day in 2007 to 8.2 million barrels per day last week (that's from 390 million gallons a day to 344 million gallons), a plunge of 12%. What's more, about half of that demand reduction took place in the past year.

We're driving somewhat fewer miles too -- about 100 million miles fewer last year than in 2007. Granted that's only a 2% reduction in miles, or roughly a half-mile less for each of the 210 million licensed drivers in the U.S.

What's more, thanks to universal use of techniques like hydraulic fracturing, America's domestic production of crude oil is on the rise. Since hitting a low in 2008, drillers are pumping 18% higher volumes, totalling 5.8 million bpd. The U.S. now supplies more than half of its petroleum needs from domestic fields.

It gets better. Ample supplies from the Bakken shale in North Dakota and from the Canadian oil sands mean that oil inventories at the big storage hub in Cushing, Oklahoma are at record levels, and West Texas Intermediate crude trades at a discount of as much as $25 a barrel to Europe's benchmark Brent crude. No wonder folks in Colorado and Wyoming enjoy the lowest gasoline prices in the nation, just $3.03 a gallon. More of the nation could enjoy the same if the Keystone XL pipeline were allowed to bring the bounty south to the refineries on the Gulf Coast.

Demand isn't rampant in the rest of the world either, with the InternationalEnergy Agency predicting that total world demand will rise just 1 million bpd this year to average 90 million bpd. China will account for 40% of that managable increase.

And you can't blame those big evil oil refiners for trying to milk us dry either. Analyst Thomas Yoichi Adolff at Credit Suisse notes that demand has fallen so much that 31 uneconomic refineries have been shut down in recent years, with two dozen more on the chopping block. The refiners that are left earn an average profit of about $11 for every barrel they process. That's about 26 cents a gallon, in line with average profitability of the past decade. (Compare that with the average 39 cents per gallon of state and federal taxes.) With their profit margins of less than 10%, it's hard to justify calling the oil companies greedy.

So with all those upbeat data points why is gas so seemingly expensive?

John Felmy, chief economist at the American Petroleum Institute says that after taxes and refiners' profits, 84% of the price of gasoline is tied directly to the price of crude oil. And who controls that? "It's all the Saudis," says Ed Hirs, professor of energy economics at the University of Houston. "What's wrong with this picture? Demand is flat, we're still in one of the worst recessions. Prices should be down as well. The Saudis are the only swing producer."